A business’s success depends on the policies that satisfy the needs of investors, stakeholders and managers. Corporate governance is the foundation of how companies create and implement their policies. In an age of new demands and expectations, effective governance is more crucial than ever before.
Effective corporate governance requires a thorough understanding of the company’s culture, values and mission. It is also important to have systems in place that enable companies to recognize and reduce risks before they occur. This includes establishing an ethical code, establishing effective reporting channels, and regulating conflicts of interests.
The board must promote transparency, accountability and openness to all stakeholders including external and internal stakeholders. The board’s job is to ensure that the company’s resources are used in a way that generate long-term value for shareholders. This is achieved through an assessment process that involves identifying risks, developing strategies for managing risk, and monitoring performance against the objectives.
Boards should think about the appointment of an independent lead director (also called the presiding Director) to ensure that they are leading their boards independently. This is particularly important when the company has an executive chair and a chair post. Boards should include non-management members in the evaluations of CEOs, if necessary and evaluate the overall performance of senior management.
The board should be able to communicate regularly with stakeholders, including shareholders, about issues that impact the company’s value-creation over the long haul, even if these stakeholders aren’t in a position where they can directly influence the corporate strategy or decision-making. It should encourage shareholders who wish to influence corporate decisionmaking to declare their identity and ownership publicly, where federal securities law permits it.